AUSTRALIA'S PUBLIC PENSION PRIVATIZATION PLAN

July 5, 2005

In anticipation of a shortfall in its public pension system, the Australian government is proposing to hand over some of its government surplus to private money managers, says the Wall Street Journal. The plan is expected to win legislative approval.

Officials are predicting a shortfall of about $91 billion in Australian dollars in the public-sector workers' pension plan, but are planning an initial investment of $16 billion, known as the Future Fund, into private investments.

Economist Stephen Walters of J.P. Morgan estimates that the private sector fund should return an average of 7 to 8 percent annually over the long-term, compared to only 5.25 percent for 15-year government bonds.

The Australian Securities and Investments Commission notes that growth funds have returned an average of 6 to 8.5 percent annually over the past 10 years, while balanced funds have averaged about 5.4 to 8.8 percent.

New Zealand has used 19 private funds managers to augment its Social Security system with a return of about 11.52 percent annually since 2003, compared with only 5.75 percent on 90-day government securities.

In 2003 and 2004, Australia posted a total surplus of $17 billion, but conservative sides of the ruling National and Liberal parties rejected the suggestion of spending the money on infrastructure or tax cuts, instead choosing to shore up public workers' retirement funds.